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Tomorrow is the start of the new tax year and cloud-based accountancy firm Boox is encouraging people to make some new year resolutions so they can stay on top of their books.
Last year more than 850,000 people failed to file their tax returns on time, incurring fines totalling more than £85 million. And 1.5m self-employed peope say they have got their tax calculations wrong. According to a Boox survey of 1,000 self-employed contractors, one in four is uncertain of the amount of tax they are required to pay each year. Some 42% of freelancers manage their own finances without the help of an accountant, 4% turn to family or friends and 54% use a personal accountant or online accounting service like Boox. One in five miss the self-assessment deadline altogether and are charged at least £100. This fine rises the more payment is delayed.
“Giving up chocolate, cigarettes and alcohol are always on top of the hit list for New Year’s Resolutions and can save you money, but what about getting your accounting in order?” says Phillip Venn, commercial director of Boox. “We want to encourage the 4 million+ Brits who are self-employed to make a new tax year resolution to get their financial administration in order, reap the financial benefits and avoid hours of admin as the deadline for filing returns comes round.”
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Resolution 1: Budget adequately for tax
I will understand what PAYE and VAT I need to pay by April 6th
Many freelancers understand how much money they need to set aside to cover their tax and national insurance contributions. According to the Boox survey, 11% have paid too little and 26% have paid too much. As a rule of thumb people should be saving approximately 30% of their gross income if they earn under £41,450 a year and 50% if they earn over.
Resolution 2: Manage expenses correctly
I will manage my receipts and invoices correctly
Some 3% of contractors store their receipts within a plastic bag and another 10% have a bulging drawer dedicated to this. This is obviously not the ideal as it could be confusing when you need to come back to review in January – find a way that works for you. Alternatively, there are platforms for digitising your expenses and receipts via smartphones.
Resolution 3: Make sure you’re getting paid on time
I will send my invoices out in a timely manner and check my bank account to make sure they’ve been paid
Some 15% of self-employed people fail to send out their invoices on time, according to the Boox survey. It’s hard to insist you receive payment in a timely fashion if you have failed to issue an invoice promptly. If you are one of the 630,000 freelancers who fail to send out invoices, try treating invoicing like a job. Set aside a dedicated time each month to get those invoices out and check your bank account to make sure you’ve been paid. If you make a note of when each invoice has been paid, you won’t have to wait until you trawl through your bank statements and invoices at the end of the year to realise you’re owed money.
Resolution 4: File your tax return early if you are likely to be due a rebate
I will claim my rebate as quickly as possible
Over a million freelancers [26%] have paid too much tax. If you are due a rebate, file your tax return as quickly as possible. You can file your return from April 6th and get the money you are owed quickly instead of waiting until the end of the next tax year.
Resolution 5: Understand what can and can’t be offset against tax
I will get advice from an expert in accounting
Many self-employed people leave it to HMRC to calculate their tax each year. This means they could be missing out on opportunities to off-set expenses and the general running costs of their business against their income. HMRC runs free courses throughout the year to help self-employed people understand what can and can’t be offset against earnings. If you plan to do your tax return yourself you could get a better deal on tax by giving up half a day of your time to attend one of these courses. Alternatively, the cost of paying an accountant or working with an online accountancy firm can frequently pay for itself when you come to file your return.